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Ballard abandons automotive fuel cells

Ballard Power Systems Inc. is getting out of the automotive fuel cell business in a move that will reduce the company's cash consumption and allow it to focus on its near-term opportunities.

Thu., Nov. 8, 2007

VANCOUVER — With fuel cell-powered cars not likely to roll off production lines until a decade or more from now, Ballard Power Systems Inc. (TSX: BLD)
announced today it will focus on its core commercial markets including forklifts, back up power and co-generation.

Chief executive John Sheridan said the sale of Ballard’s automotive fuel cell business to Daimler AG and Ford Motor Co. will shorten the company’s time to achieve profitability as it turns from fuel cells for cars to nearer-term opportunities.

The company said the deal will reduce cash burn by US$15 million a year

Shares in the company traded higher on the news, closing up 29 cents or 5.8 per cent to $5.28 on the Toronto Stock Exchange today.

Though it is best-known for making the fuel cells that power cars, the company has seen recent success in selling fuel cells for other applications and signed several deals in recent months.

Despite the pullback in the automotive sector, Ballard will maintain its hand in working on fuel-cell powered buses.

Sheridan said in developing fuel cell cars there’s a considerable costs and a series sequential programs that must take place over many years before they can be a reality with no government support, unlike bus programs.

“That’s what some people negatively refer to as the black hole on the fuel cell car side,” he said.

Research Capital analyst Jonathan Hykawy called the deal a positive development for the company.

“I never put any stock in the automotive fuel cell anyway, so the fact they’ve taken those development costs and shovelled them off to someone else even at the expense of losing a good chunk of their staff and all of that is a positive,” he said.

However Hykawy said without the automotive business, Ballard, once a stock market darling that traded for more than $200 per share in 2000, loses some of its sexiness in the market.

“What they become now is essentially a supplier of carbon-based materials which is not exactly what you’d call a sexy business and a niche supplier of fuel cell stacks to a couple of different industries,” Hykawy said.

“What sort of multiple ultimately gets assigned to a company that has lost most of its ground-breaking blue sky potential, I don’t know.”

Under the deal announced late Wednesday, Daimler AG and Ford Motor Co. will return the 34.3 million Ballard shares to Ballard they hold to the B.C.-based company which will cancel the shares, reducing its outstanding share base by about 30 per cent.

Ballard expected to record an estimated gain of US$95 million to US$105 million on the deal, which requires approval by a majority of the company’s shareholders, excluding any votes cast by Daimler and Ford.

The deal is expected to close in January.

The Canadian company will transfer 113 employees, primarily in the research and technology development areas, to Daimler and Ford. This represents about 20 per cent of the Vancouver firm’s workforce.

Sheridan said the company will also eliminate eight executive jobs including three vice-presidents.

The new private company managed and funded by Daimler and Ford will be located at Ballard’s facilities. The automakers will contribute $60 million to the new company and Ballard will invest $60 million for a 19.9 per cent stake, but it won’t be obligated to provide any ongoing funding.

Ballard will provide contract technical services and manufacture fuel cells for the new private company on a profitable basis.

Ballard also reported Wednesday a third-quarter loss of US$16 million or 14 cents per share for the July-September period, compared with a net loss of US$17.9 million or 16 cents per share for the same period in 2006.

The company, which reports in U.S. dollars, said revenues increased 53 per cent in the quarter to $17.6 million compared to $11.5 million from the same period last year.

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